By Dwyer Gunn
from Pacific Standard
Earlier this week, Hillary Clinton announced a rather significant expansion to her higher education plan. Clinton’s updated proposal calls for free tuition at public, in-state, four-year colleges for families earning less than $125,000 a year—which is 80 percent of American families. The free tuition would be phased in gradually through 2021 and would initially apply only to families with incomes under $85,000. Under her plan, community college students would also pay no college tuition.
The funding of higher education emerged as a major difference between Clinton and Bernie Sanders during the Democratic primary. This proposal come as Clinton works to win the support of young voters and Sanders supporters. Sanders backed universal free tuition at public colleges, while Clinton had previously advocated “debt-free” tuition. Clinton’s new plan represents an interesting compromise — it would help most American families, but avoids subsidizing the educations of the wealthiest Americans.
Clinton’s plan also includes a number of initiatives meant to encourage (and require) states to continue to invest in higher education, which was a key pillar of the Sanders plan. In a news conference on Wednesday, Sanders praised the plan, calling it “the work of both campaigns.”
As the Clinton campaign’s briefing memo points out, student debt is the second-largest source of consumer debt, totaling $1.2 trillion. Seven million Americans have defaulted on their debt, and many more are behind on their payments. (There is less economic support for the memo’s assertion that student debt is “holding our economy back.”)
But not everyone agrees that free tuition is the answer. In fact, most economists don’t like the idea — they argue that it mostly benefits upper-income students (low- and middle-income students already receive substantial financial aid at most public, four-year colleges) and is thus an inefficient use of scarce resources.
Harvard University economist Eric Maskin called Sanders’ proposal “too indiscriminate” in an interview with National Public Radio earlier this year. “Many students can afford to pay a considerable amount toward their higher education,” he said. “It is wasteful to give them a free ride.”
Our current system requires borrowers to pay off their loans when they can least afford to: at the beginning of their careers.
Of course, Clinton’s proposal avoids some of that criticism by capping the benefit, although some will no doubt argue that families earning, for example, $124,000 a year should be able to pay for college themselves.
In addition, economists have warned about some of the unintended consequences of making public college free — thousands of students who might otherwise have attended private schools will opt to attend public college instead, straining schools’ resources and capacities, and making it even more difficult for them to provide low-income students with the additional assistance and support they may need.
Even absent logistical constraints, it’s actually not clear that this is the most cost-efficient way to help students. College continues to be an excellent investment for most students — the majority of those who graduate from both public, four-year colleges and private, four-year schools go on to earn good salaries and pay off their student loans. For the vast majority of graduates of public, four-year colleges, their student loan debt pales in comparison to the higher lifetime earnings they enjoy as college graduates. Unfortunately, our current system requires borrowers to pay off their loans when they can least afford to: at the beginning of their careers.
A few years ago, education experts Susan Dynarski and Daniel Kreismanproposed a simple solution to our student debt crisis: Instead of expecting recent college graduates to make hefty student loan payments, why not automatically peg loan re-payment to earnings, deducting a small amount from each paycheck? When students earnings are high, they pay more toward their student loans; when they’re low, they pay less. Under Dynarski and Kreisman’s proposal, the payments would continue until the loans were paid off or until 25 years had passed. Many European countries employ similar systems — allowing students to pay back their loans over longer time periods and pegging payments to income.
“A policy that eliminated debt would also do away with default. But an end to student borrowing is not on the horizon,” Dynarski wrote in a blog post earlier this year. “Even if tuition were free at public colleges, many students would still borrow to fund their living expenses. And none of the free-college proposals apply to for-profit or private colleges, where borrowing is high.”
Clinton’s new education plan nods to this as well — it includes a bold call for athree-month moratorium on student loan payments for all federal borrowers, during which time borrowers can consolidate and re-finance their loans, and sign up for income-based re-payment plans. (Unfortunately, while the United States does have income-based re-payment plans, enrollment is confusing and payments are pegged to previous year’s earnings, which often presents problems for borrowers with highly variable earnings.) Clinton’s proposal also calls for student debt to be forgiven after 20 years, earlier for those who work “in the public interest.”
Providing free tuition at in-state, four-year public colleges is a popular policy among young voters, but a concerted effort to enroll students and borrowers into more sensible, automatically adjusting, income-based loan re-payment programs might do more to solve the student debt crisis—and at a much lower cost.